Servicing

Fannie Mae said in its first-quarter securities filing that it made servicers buy back or reimburse it for losses on $1.8 billion of loans, 64% more than a year earlier. It was the first time the government-sponsored enterprise disclosed the volume of its repurchase demands. Previously Fannie only acknowledged that the number of such demands had been on the rise since 2008 as delinquencies worsened. Freddie Mac also has been sending more loans back to lenders: $1.3 billion in the first quarter, up 65% from a year earlier, according to its first-quarter filing last week. In February Fannie announced a "loan-quality initiative" designed to reduce loan repurchase requests. If lenders do a better job on the front end of making sure the loans they deliver meet the GSE's guidelines, Fannie has said, it would not have to make lenders buy back so many defective mortgages after the fact. The initiative will begin next month. Among other changes, lenders will have to pull a second credit report just before a loan closes to check if the borrower has taken on additional debts since submitting the mortgage application.

Returning to his Realtor roots, Federal Housing Administration commissioner David Stevens called on the nation's largest trade group of real estate professionals to storm Capitol Hill in support of legislation to reform the government's housing insurance agency. "The FHA is at risk," Stevens told NAR's midyear legislative meeting in Washington. The FHA chief, who came to the agency from Long & Foster Realtors, one of the largest independent real estate companies in the nation, said the government cannot continue to prop up the housing market "unless we do something to shore up" FHA's capital reserves. Currently, H.R. 5072, which would allow the FHA to more closely mirror how private sector mortgage insurers price their products and hold lenders accountable for the loans they originate, has been cleared by the House Financial Services Committee but has not yet been scheduled for floor action. Commissioner Stevens called it a "critical bill" because otherwise FHA cannot continue to be the cornerstone to the housing market it has been for the past 30 years. If the legislative changes Stevens wants are enacted, the estimated value to the FHA insurance fund would be some $330 million a month. He said the fixes would help the agency replenish its capital reserves even faster than if this authority was provided through the annual Congressional approval process.

The Federal Deposit Insurance Corp. on Tuesday revamped its securitization proposal, mandating that depositories hold a 5% risk retention piece, but exempting loans sold to the GSEs and into bonds guaranteed by the Government National Mortgage Association. The initial proposal issued in November required banks to season single-family loans for 12 months before securitization. As a result of industry comments, FDIC dropped the seasoning requirement and is now proposing that banks issuing residential MBS maintain a 5% reserve fund for one year to cover early defaults and breaches of representations and warranties. The new proposal, which will be published for a 45-day comment period, requires bank issuers to retain 5% of each MBS tranche. The FDIC proposal is designed to update the agency's policies on the treatment of commercial and residential MBS when the issuing bank fails. It is also designed to address problems that arose in the subprime market, placing additional requirements on residential MBS issuers, including disclosures by the servicing bank if they own the second liens on the loans being serviced. "We want the securitization to come back the right way, not the wrong way," said FDIC chairman Sheila Bair. Agency officials noted that their measure is similar to a Securities and Exchange Commission proposal that also imposes 5% risk retention on bank and nonbank MBS issuers. Chairman Bair said the SEC proposal, when finalized, will become the "base" for banks. The FDIC board of directors approved the securitization proposal for public comment by a 3-2 vote. Comptroller of the Currency John Dugan and the Office of Thrift Supervision acting director John Bowman voted against the proposal.

Redwood Trust Inc., which recently came to market with a jumbo MBS deal, is already working on a follow-up bond offering, according to industry officials familiar with the matter. The publicly traded REIT had no comment on its plans. One investor noted that "they already have the loans in place." And a source close to the firm noted that the Mill Valley, Calif., company "is interested in creating more credit pieces or subs to own or invest in." Last month Redwood securitized $238 million of jumbo prime residential mortgage loans through its Sequoia securitization program. It was the first non-government sponsored residential jumbo bond issued in almost two years. Many of the loans collateralizing the security came from CitiMortgage. (Citi's parent firm was one of the bond's underwriters.) Meanwhile, Redwood on Monday launched a flow purchase program where it will acquire prime residential mortgage loans from "banking companies and other selected originators." It noted that the effort "is currently operating with a small number of mortgage loan originators that have national platforms."

Commercial mortgage lender and servicer Red Capital Group, Columbus, Ohio, has been sold by PNC Bank NA to an investor group led by Orix USA Corp., Dallas, a subsidiary of Japan's Orix Corp. Among the members of the investment group is Stonehenge Partners, Columbus. Terms of the transaction were not disclosed. Red provides financing for multifamily, senior living and health care projects through various FHA and Fannie Mae programs. Under the new ownership it will continue to operate under the Red name. Jim Thompson, CEO of Orix USA said, "We are fortunate to be able to add Red's experience in multifamily, senior and health care finance to Orix Capital Markets' commercial real estate capabilities. FHA and Fannie Mae will continue to be important components of the nation's housing finance programs; the Red acquisition enables Orix to deploy its capital into those important markets." William Roberts, Red's founder and chief executive from 1995 to 2007, has resumed that post. Red currently services $12.5 million in commercial mortgage loans. It also has a registered broker-dealer unit that provides underwriting and syndication of multifamily housing bonds and the related tax credits.

PNC Financial Services Group Inc. says in a new public filing that the troubled loans it inherited through its purchase of National City Corp.-once a top 10 ranked residential lender-eroded more than expected during the first quarter. PNC, which has emerged stronger from the financial crisis, set aside an additional $100 million to offset future losses from the loans. The Pittsburgh-based depository now has $604 million in reserves to account for future losses it expects to be generated by the $9.8 billion portfolio of loans. PNC has kept most of NatCity's residential production and servicing division intact, but is in the process of winding down its warehouse lending unit. Besides operating a mortgage banking affiliate, NatCity was an active home equity and commercial real estate lender. In late 2008 PNC bought the Cleveland-based regional.

The financial turmoil in Greece and other debt-laden European nations could trigger a rebound of mortgage refinance activity in the U.S., or not. Upheaval in the global markets, such as last week's dramatic sell-offs, has historically prompted a "flight to quality"-investor purchases of Treasury bonds. Surging demand for these safe havens for capital can push yields-and the mortgage rates that move in lockstep-down. This in turn has often sparked interest in refinancing, and some lenders say they are already getting more calls from borrowers, which typically happens when mortgage rates fall below 5%. But many lenders also say they need to see a little more downward momentum on rates before an increase in refinancing is likely to stick. Rates would have to drop another quarter-point or more for refinancing to make sense to the large group of borrowers who already were part of a flurry of refinance activity last year. Borrowers would also have to overcome tighter underwriting and appraisal guidelines. And many borrowers still have little or no equity in their homes, making them ineligible to refinance. "A large part of the population that could refinance likely has," said Mark Freedle, chief executive of NetMore America Inc., Walla Walla, Wash. When the stock market fell by nearly 1,000 points last Thursday the yield on the 10-year declined to almost 3.3% before rebounding somewhat. On Monday the 10-year was trading at 3.56%. Because the average mortgage is paid off within 10 years, the 10-year Treasury serves as a bellwether to where mortgage rates might be headed.

Serious delinquencies for U.S. alt-A residential mortgage-backed securities declined month-to-month for the first time in four years and subprime performance also improved for the second month in a row, according to Fitch Ratings. Alt-A RMBS delinquencies dropped to 34.1% in April from 34.4% in March but are still up from 27.4% in April 2009. Subprime RMBS delinquencies in April slid to 45.2% from 46.3% the prior month but continue to be higher than the 40.1% a year ago. Fitch attributed the improvements to more loan modification activity and better liquidation and roll rates. But Fitch also noted that since 35% of subprime loans and 8% of the alt-A loans are modified these loans face redefault risk, which could hurt performance going forward. Managing director Vincent Barberio said the next few months could determine whether the trends signal a turnaround in alt-A and subprime or a more short-lived seasonal uptick. Prime jumbo performance in April deteriorated slightly month-to-month, but the delinquency rate in this category continues to be far better than that of loans in the two other categories. Prime jumbo RMBS during the past month saw 60-plus day delinquencies rise to 10.2% from 10.1% the previous month.

The number of mortgaged homes with negative equity fell slightly in the first quarter to 11.2 million units, according to figures compiled by First American CoreLogic. FACL says almost one-quarter (24%) of U.S. homes are "under water" while 28% have negative equity or a related category called "near-negative" equity. (Roughly 2.3 million borrowers have less than 5% equity.) In 4Q, 11.3 million homes had negative equity. Basing its research on a database of 47 million loans, the company noted that underwater mortgages are concentrated in just five states: Nevada (where 71% of mortgaged homes have negative equity); Arizona (51%); Florida (48%); Michigan (39%); and California (34%). "The aggregate dollar value of negative equity for these deeply underwater borrowers was $656 billion," says the Santa Ana-based company. CoreLogic chief economist Mark Fleming noted that negative equity and unemployment have stabilized over the past six months, which bodes well for future increases in home values. "As house prices grow again and borrowers pay down their mortgage debt, negative equity levels will begin to diminish," he said. "The typical underwater borrower will likely regain their lost equity over the next 5-7 years," Fleming said. First quarter figures from CoreLogic show that borrowers with second liens or home equity lines of credit are twice as likely to be underwater than borrowers with only a first mortgage -- and twice as likely to end up in foreclosure. "The foreclosure rate for borrowers with junior liens was 4% compared to 2% for borrowers without junior liens," the report says.

Fannie Mae purchased 61,929 foreclosed homes in the first quarter and is on track to far surpass last year's REO acquisitions of 145,617. Based on the 'run rate' of the first quarter, the government controlled mortgage giant could wind up taking title to almost 250,000 homes this year, according to an analysis done by National Mortgage News. In 2008 and 2007 the GSE purchased 94,652 and 49,121 REOs respectively, according to supplemental financial information released Monday. The company's policy is to sell the foreclosed homes to consumers but it also uses the bulk sale market which caters to investors.